The Pros and Cons of Internet Banking

In the 90s during the Internet boom, it seemed like the whole world was on track to go digital and online. Americans were beginning to see the usefulness of the Internet and began to send mail, shop, and receive news and other types of media all digitally. The Internet was changing our way of life in a way not seen since the Industrial Revolution. But as exciting as these changes may be, is there a limit to what the Internet can do, especially in the banking industry?

The Automatic Teller Machines (ATMs) changed the banking system by computerizing some basic transactions. Then Internet banks offered the option of computerizing ALL of the transactions that a bank customer could make and thus do away with the need for a physical structure we know as a bank branch. Just as ATMs allowed banks to reduce their operating costs, Internet banks further reduced operating costs by not having to pay rent, maintenance or insurance on bank branches. The Internet banks’ ability to operate at a higher efficiency has allowed them to work under a different business model than the traditional bank.

With their reduced operating expenses, Internet banks offer better interest rates and charge lower fees than brick and mortar traditional banks. Because everything is done online, there is no need to change banks if you relocate, which may have to be done with traditional banks. However, while these pros allow customers to both save and earn more money at the same time, some people suspect that Internet banking is too good to be true. As a result, many people are not comfortable with trusting their finances to an all-digital business.

To help alleviate those fears, a majority of Internet banks participate in the FDIC program. This fact instills confidence in their customers that they are indeed a legitimate bank and reassures them that their money will be just as safe in a digital account as it would be in a traditional bank. The FDIC website has a Bank Find tool that allows users to check the status of any bank to see if they are truly insured by the FDIC.

While Internet banks seem to be the next step in the banking evolution, they, too, have shortfalls that they haven’t yet been able to overcome. Personal finances are a very important, confidential part of everyone’s lives, but they also can be confusing. Customers want confidence and a level of trust in the institution that is holding their assets. That is why with physical banks, the ability to see the banker face to face and shake their hand creates a comfort that Internet banks only dream of. While online banking is becoming more and more common, traditional banks have made great strides at closing the gap, offering the same online tools as their Internet peers such as online bill pay or smart phone applications. But they also have services, such as safety deposit boxes, that Internet banks cannot offer.

Internet banks have been able to compete with traditional banks based on their lower operating costs, but because they have only an online presence, there are some services they cannot offer. On the other hand, due to recent law changes and the recovery from the credit crisis, banks are altering their business models, resulting in changes in their services and fee structure. For customers, this can cloud the decision of which bank to choose. It’s important that customers weigh all of these options carefully before choosing their bank.

As for myself, I keep an account with both an Internet bank and a traditional bank in an attempt to enjoy both of their benefits while minimizing their shortfalls.

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